For the cantons which still give any interests on pre-payments yes… Quite a few cantons are unfortunately at 0% since a few years
“I used to pay taxes in instalments. But each quarter I became more sad about the hundreds of Francs in “losses” to tax bleeding from my bank account (although I knew it would add up the almost the same when paying yearly). In my canton they automatically send you an invoice with the option to pay in one instalment. I do that now, within minutes after receiving the tax bill, and have a better view of the situation.”
Since it’s an ultimately unavoidable recurring expense, I prefer to pay it off as soon as possible and be done it. It not only simplifies my actual account keeping (which I do in my head, not using any tools or software over the course of the year). It also greatly improved my mental accounting.
Instead of paying taxes every month or quarter, I just pay it once.
…and then enjoy the remaining 11 “tax-free” months of the year.
I don’t see how this simplifies mental accounting. Assuming you receive most of your income monthly, it makes sense to me to also pay income taxes monthly. Almost as if taxed at source, you only have the net amount on your account. I wouldn’t want to pay rent a year in advance, why would I want to pay taxes a year in advance?
What if you want to take a sabbatical for a few months? You’d have prepaid too much taxes and might have to wait for up to 2 years to get it back. Maybe you could have used that cash buffer during the sabbatical.
Do you save up cash beyond your emergency fund before you receive/pay your provisional tax bill in February? This would mean you save cash for taxes for income you haven’t even earned yet and without receiving any interest.
I suppose it doesn’t matter much if you anyway always have more cash than your emergency fund allocation because of lack of low risk investment alternatives. However, if you invest everything beyond your emergency fund, I think matching the cadence of your tax payments with your income makes most sense.
Whatever works best for you, of course, I am just wondering whether I’m missing something.
Same here. Paying before December 31st the full amount estimated for the following year has a small side-advantage : this amount is not in my wealth at the end of the year, which makes a small savings on wealth tax.
I assume you mean the full tax amount for the current year. Prepayment for a future year is not generally possible, as far as I know.
Regarding wealth taxes, there is no difference whether you pay the full tax amount right when receiving the provisional tax bill or paying it in monthly installments until the end of the same year.
Also, if you didn’t pay taxes until the following year, I’d expect it to be possible to deduct the taxes as debt from your taxable wealth.
Depending on how you look at it, I don’t really have an emergency fund.
I do have a “savings account” for the yearly expenses (tax, health insurance, 3a). I make recurring monthly transfers to that account from my day-to-day account - but I’m comfortable with both accounts going to zero.
In an emergency, I have credit cards to tide me over and may have to just stop saving for a month or two.
Let me clarify.
In December 2021 I received the provisional amount for the taxes of 2022, payable either on a monthly basis in 2022, or in full with a single payment.
Paying in full before 31 Dec 2021 means that this amount was not in my wealth anymore, when making my tax declaration in March 2022 (for the revenues of 2021 and wealth on 31-Dec-2021). Hence, indeed, I save on the wealth tax of 2021 by paying before end 2021 the full provisional amount for 2022.
I wonder what Canton that is. It’s super different from those i know where you’d never pay tax for year N on year N-1. You either pay on year N or N+1.
I do the same in VD.
Towards the end of the year I get 12 invoices to pre-pay taxes for the following year with due dates at the end of each month, Jan to Dec Y+1. And I also get a 13th invoice with the full yearly amount. That’s the one I pay before Dec 31st and forget about it.
I make this payment from a dedicated “tax” account with 0% interest but also 0% cost. Every month I transfer 1/12 of my Y+1 estimated tax. The only issue is I’m bad at estimating and usually in December I need to add some extra to pay the Y+1 bill. But I guess that only means that I got more income than expected so I’m content with it.
VD as well.
In December of year N-1 I pay the estimated tax for year N, based on a provisional invoice as described by Ed_Waadt.
The final settlement for year N is done after the declaration is filled in (in March of year N+1), and assessed by tax authorities (generally of few months later).
Interesting, I didn’t know that there are cantons (or at least one) that send out provisional bills before the start of the tax year.
Strictly speaking, the prepayment might need to be listed as an asset, voiding the wealth tax benefit. However, they might not check or enforce this.
The opportunity cost is not zero, though, is it?
Of course not! But there is also zero risk that I cannot make my tax payments. Some have a hefty emergency fund in case something unexpected happens. I have a tax fund for the certain tax payments
There is also no risk if you pay taxes monthly for the current tax year (instead of saving monthly a year in advance). If there is a sudden loss of income, there is no income tax to pay (unlike emergencies). And if you pay taxes in the current year, it should also be easier to estimate.
I have a spreadsheet with my current liquidity and expected budget over the next 6 months, listing all my payments/income. That way I keep an eye on liquidity management and won’t be surprised by any tax invoices.
Coming back to the original question: Looking at the current stock market prices, why shouldn’t I delay provisional tax payments for a cheap 0.25% rate? That’s like the best investment on margin I can imagine Of course, it’s also frowned-upon market-timing, I’m very well aware of that, it’s my weakness.
Does anyone know how interest on tax payments works in Geneva?
I saw this table showing 3% for 2023 but I’m not sure how they apply that. e.g. would they apply it if you pay your monthly taxes as they computed and then pay the difference (e.g. 10k extra from a bonus awarded in Jan) when you file the taxes in 2024?
Also saw this page on L’intérêt moratoire but not sure if the “notification du bordereau” is within 30 days of the invoice from the tax office (post tax filing), or 30 days of receiving the payment. Confusing for me in French!
I actually do it this way.
IMO it isn’t market-timing, as I don’t sell any shares to pay the final tax bill, but I adjust the savings rates shortly before the due day, in order to have enough cash on hand.
As I’m expecting to get about 4-5% p.a. on average on that amount, I’d rather invest that money and pay a measly 0.25% p.a. for it.
As I recently received the provisional invoice for direct federal tax, I am wondering whether an extension of the tax return deadline would make sense. Since the (higher) definitive bill is only generated once I have sent off the tax return, it would thus be possible to “defer” the difference in tax.
Am I missing anything here?
Note that filing your taxes later does not always result in a later definitive bill, depending on who processes your taxes. However, your suggested approach can help.
The only drawback I can think of is that the value dates of your Verrechnungssteuer credit and foreign withholding tax credit are also moved back when filing your taxes late. At least that’s the case in ZH.
I noticed this year that filing taxes early February was to my disadvantage. I got a corrected provisional federal tax bill for 2022 in mid February, based on my tax declaration. Surprisingly, the corrected provisional tax bill (dated February 10) actually arrived before the original provisional tax bill (dated March 1 but arrived a few days earlier). So the tax bill dated February 10 states that it replaces the tax bill dated March 1
I received from my gemeinde tax office “Provisorische Rechnung (Zahlungseinladung)”, “provisional invoice (invitation to pay)”.
I found it a bit annoying the fact of multiple estimated payments. I would prefer to pay all at once.
I think this payments now are optional, and if you prefer they can be paid all at once when you will get your final tax bill. Then you have 30 days to pay all. Probably with an very small interest addition. Personally, when the tax is requested I could take the money from my personal budget for emergencies.
How do you use to handle this? do you pay with multiple payments ahead? or do you prefer to keep the money with you as long as possible and pay all taxes at once when they are requested?